Few investors have made as many mistakes navigating markets over the past two weeks as Philippe Jabre.

Mr. Jabre, one of Europe’s best-known hedge-fund managers, bought Japanese stocks on news of the earthquake, and then suffered when the Nikkei Stock Average quickly tumbled 13%. Making matters worse, Mr. Jabre got nervous and sold his shares last week, just before a rebound in Japanese stocks. The miscues cost his firm about $300 million, the worst few days of his career.

But as Mr. Jabre reflects on his decisions, he isn’t sure he made many mistakes.

“I keep thinking about it, what could I have done differently?” said Mr. Jabre, who manages $6 billion hedge fund Jabre Capital Partners SA. “I spent all last weekend asking questions” of friends, colleagues and clients, he said. “We couldn’t take the risk of the Tokyo Stock Exchange closing down, so we sold” Japanese shares.

Investors have been forced to negotiate treacherous markets over the past few years, perhaps none more uncertain than those of the past two weeks. They made on-the-fly judgments about the extent of the devastation from March 11′s earthquake and tsunami, the impact of the unfolding nuclear crisis, and their effects on the global economy.

A former star trader at British hedge fund GLG Partners, Mr. Jabre, 50 years old, left to start his own firm in early 2006. When most rivals were racking up huge losses in 2008, the Lebanese-born investor scored gains in one fund of 3%, 46% in 2009 and 4% last year.

Suddenly, however, many of his decisions are losers. At the end of February, Mr. Jabre’s firm was cautious about Japanese and U.S. markets. He told a colleague he was hoping for a pullback in prices, so he could plow some money in.

On the Friday the earthquake hit, Mr. Jabre saw his opportunity as stocks weakened. At the time, one of his funds, the JabCap Global Balanced Fund, held futures contracts on the Japanese market that would profit if prices declined, a form of protection for the fund. Mr. Jabre, who last year criticized investors for being “too scared” about the European debt crisis, was convinced Japan would rebound.

That day, he stole a few minutes in his private office and lit a cigar. He weighed his options before taking his spot on the firm’s trading floor, with a full view of the mountains and rivers surrounding old Geneva. Mr. Jabre, who once survived an avalanche while skiing, directed his traders to exit the bearish futures trades, believing prices would rise.

“We can take off our hedges and be 100% long,” he told a colleague at the time. Without the hedge, which had reduced his fund’s Japanese exposure to 9% of his portfolio, Japanese shares became 15% of his portfolio, a sizable wager.

News over the weekend soon arose about problems at Japan’s Fukushima Daiichi nuclear plant, taking Mr. Jabre by surprise. Monday and Tuesday brought big losses in Japan and elsewhere. Trying to assess the impact of the damage, Mr. Jabre consulted four nuclear scientists.

By Wednesday, the Nikkei had dropped 13% in four trading days. Several of Mr. Jabre’s funds faced losses, one of them as much as 10% for the month. To his traders, Mr. Jabre appeared calm. He wasn’t.

“I felt horrible, but I don’t express happiness or frustrations,” he said. “Emotions are the enemy of a balanced person.”

During the 2008 U.S. stock-market collapse, Mr. Jabre bailed on his positions after 10% losses, enabling the fund to survive a market that felled some rivals.

Mr. Jabre reasoned that if radiation spread to Tokyo or a nuclear reactor exploded, authorities could close the Japanese stock market, freezing his shares for months. “If we touch negative 10%, we get very, very, very nervous,” said Mr. Jabre, who promises his investors to keep losses to a minimum.

Last Wednesday, Mr. Jabre cut positions in Japanese and global shares, eliminating his firm’s entire exposure to all stocks.

“If we’re wrong [and the market rallies], we set the firm back,” Mr. Jabre remembers telling a colleague. “But we’ll be alive to fight another day.”

“People like us tend to sell high and buy low; to sell low feels very odd,” he said. “But this is the firm’s style, even if there’s just a one-in-six chance of a nuclear explosion, we couldn’t take the risk.”

Two days later, however, Japanese and foreign monetary authorities took steps to stem the rise in the yen, helping shares rebound. By this week, the situation at the nuclear plant showed signs of stabilizing, bolstering global markets, though Friday brought new concerns of a radiation leak. The Nikkei index is up almost 5% since Mr. Jabre bailed. “We got whipsawed,” he acknowledged.

Mr. Jabre bought global shares on Monday of this week, but he remains cautious about Japanese stocks and the yen. It isn’t clear how recent events will impact Japanese companies, Mr. Jabre said.

He now is calling clients, who include wealthy investors and institutions, to explain the recent losses. He acknowledged he shouldn’t have turned bullish so quickly after the earthquake. As for bailing out early, “it’s the first time a nuclear meltdown was at risk,” Mr. Jabre said. “It was hard to assess the consequences.”

The rebound in U.S. shares over the past week has helped his funds. A convertible fund that had dropped 5% during the worst of this month’s trading now is slightly positive for the year.

But the JabCap Global fund, one of his biggest with $1.5 billion in assets, remains down 7% this month and has lost 3% this year, worse than most competitors. Most of his investors understand his recent moves, Mr. Jabre said. Few have asked to pull their money and some are adding more cash, he said.

“The reason we’re still around is our risk management,” he said. “We’re telling clients that we’ve lost six months of performance, but we’ll be back.”

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com

As financial markets struggle to digest the catastrophic effects of Japan’s earthquake, growing violence in the Middle East and resulting jolts to global economies, traders like John Brynjolfsson and Samer Nsouli are engaged in a furious fight to try to stay ahead of events.

Wednesday afternoon, Mr. Brynjolfsson was in the lobby of a Denver office building, waiting to meet a potential investor for his hedge fund, Armored Wolf LLC. Rather than review notes for the meeting, however, Mr. Brynjolfsson couldn’t take his eyes off a television screen flashing market prices.

Soon he was calling contacts at Wall Street banks, searching for information about what he describes as “a freefall panic” in currency markets that sent the yen soaring to its highest level in years, and the dollar tumbling, all between 5:10pm to 5:20 Eastern time on Wednesday.

Mr. Brynjolfsson dialed his trader, Tim Alford, who was back in the office in Aliso Viejo, California. Their $500 million fund already was short the yen, costing it money. Now Mr. Brynjolfsson wanted to add more bearish positions.

“It’s not worth it,” Mr. Alford told his boss, urging caution.

Around the same time, Mr. Nsouli was at his trading desk in New York, watching the historic plunge of the dollar against the yen.

“I can’t believe this,” Mr. Nsouli said to a colleague in the office of his $80 million hedge fund, Lyford Group International Ltd. Rather than make a currency move, Mr. Nsouli quickly sold U.S. stocks, expecting the dollar’s drop to weigh on shares. In a matter of minutes he would learn if he was right.

Mr. Brynjolfsson and Mr. Nsouli are called “macro” traders because they bet on global macroeconomic events. Unlike most mutual funds and other vehicles, these investors can trade stocks, bonds, currencies and commodities around the globe, a freedom that helps explain why they’ve seen a rush of money from investors, as global political and economic events have more impact on markets than ever before.

But with the freedom comes added pressure. Mr. Brynjolfsson and Mr. Nsouli hold hundreds of millions of dollars of positions in global markets, forcing them to react instantaneously to different events around the globe.

A coordinated intervention in the world’s currency markets as the G-7, in a very rare move, agrees to a concerted effort to drive down the yen. WSJ’s Jake Lee and Hong Kong Bureau Chief Peter Stein discuss.

One example is oil. The nuclear accident in Japan suggested to some traders that the prices of oil, natural gas and coal would rise, as Japan and other nations move away from nuclear power, putting new pressure on already stretched energy markets. Some investors have bid up these investments. Other traders countered that the falloff in demand in Japan is quite small, or that the events there would cause a slowdown in overall economic activity, something that should hurt oil prices.

“A nuclear leak can cause oil to rally or sell off, usually in the same time,” said Mr. Brynjolfsson, citing moves in Thursday’s oil market. “And instead of typical 25-cent or 50-cent moves it’s $1 or $3.”

As they desperately search for an edge, the investors are turning to new sources of information. Mr. Nsouli, a native of Lebanon, has begun to rely on Al Jazeera’s coverage of the events. And he’s using insights from emails sent by his cousin, who lives in Bahrain, about the violent protests in that country.

One email yesterday afternoon read: “hey buddy. situation has gone from bad to worse, and in the past 48hrs it has really spiraled out of control.”

Mr. Brynjolfsson has taken to peppering questions at his 84-old father, Ari, who spent 40 years as a nuclear scientist, asking about the potential impact of Japan’s nuclear crisis.

“The amount of confusion is extreme,” Mr. Brynjolfsson says.

Mr. Brynjolfsson and Mr. Alford spent much of Wednesday debating what to do. Early in the day, while he was on the way to his meeting, Mr. Brynjolfsson listened as a European energy minister called the situation in Japan a disaster. Global stocks soon tumbled.

Seconds later, Mr. Brynjolfsson shot off an email to his portfolio manager: “Fade the rantings of the EU commissioner,” using trading lingo for ignoring the minister’s sentiments.”In five hours we’ll find out he has no information beyond last night’s Rachel Maddow show.” Don’t shift the firm’s positions, he told Mr. Alford. “The guy didn’t know what he was talking about,” Mr. Brynjolfsson explains.

He had been consulting with nuclear and medical experts, asking about the impact escaping radiation could have on citizens of the country and what could be done to help them prevent injury. He also consulted his father, who wasn’t panicked.

“We’re overdoing it,” Mr. Brynjolfsson concluded to a colleague, saying his fund should consider buying uranium. Mr. Brynjolfsson also was tempted to buy Japanese shares. But he worried that even if he didn’t think the nuclear threat was great, others might.

“If 90% of experts say don’t buy Toyota it doesn’t matter if they never find radiation on car seats,” he says.

As the yen soared late in the day, Mr. Brynjolfsson became more convinced he had to act. He long argued that Japan’s heavy debt, slow economic growth and demographic challenges eventually will cripple the nation’s currency and Japanese government debt. The Bank of Japan will be even more likely to spend money and reduce the value of its currency to help the country rebound from the recent disaster, Mr. Brynjolfsson argued.

Mr. Alford, his trader, was less convinced. He was on the phone with traders in Wellington, New Zealand, trying to figure out why the yen was plunging, concluded that it likely was because it came at a time of little trading in currency markets.

“Someone could be messing around” with the market, he said. He argued that the market was in such turmoil it would be hard to short yen at the prices quoted at that moment.

Mr. Alford also told Mr. Brynjolfsson that even if he was right in the long run, other traders could be piling into the yen, some of them scrambling to exit bearish positions on the currency, making a short bet on the yen a likely losing proposition, at least in the near term.

Shorting Japanese government debt “is where hedge fund managers go to lose money,” Mr. Alford says, citing years of losses by those making this trade.

“I’m tempted.” Mr. Brynjolfsson says. “But Tim’s trying to protect me.”

He stepped up a recent effort to slice the firm’s positions in almost every market, from stocks to emerging market debt, preparing for even bumpier times for the market. But because he clung to his relatively upbeat outlook for the Japanese crisis, Mr. Brynjolfsson warned his team to exit bearish positions before bullish ones.

Mr. Brynjolfsson flew back to California on Wednesday night, arriving at his fund’s office before 6 a.m. He and his team continued to trim the firm’s positions, while holding onto some bullish bets. That helped yesterday, as stock markets rallied. Trying to relax from the action, Mr. Brynjolfsson walked to a Zen garden in his office complex, sitting by a koi pond, waiting to hear if the Denver investors would become a new client.

Back in New York, Mr. Nsouli also was startled by the huge move in the yen late on Wednesday. Instead of trading that currency, he decided to add short positions on the Standard & Poor’s 500. Within minutes of the yen move, he had sold $45 million of futures contracts on the S&P 500. Just a half an hour later, the position had gained 1%, and Mr. Nsouli quickly sold it, pocketing a quick $450,000.

By Thursday, his focus was again focused on the Middle East, an area he thinks will have even more impact on global markets in the weeks ahead.

“The most underestimated and overlooked issue is what’s happening today in Bahrain,” he said yesterday afternoon. Mr. Nsouli argues that there’s a 20% chance that Iran enters the situation, something that could bring the U.S. into military conflict with the nation.

Such a scenario would send oil prices surging, he says. So Mr. Nsouli has been buying up oil contracts, using any dip as a reason to buy more. That move paid off Thursday, as crude prices soared 3.5%.

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com

Hedge-fund manager John Paulson personally netted more than $5 billion in profits in 2010—likely the largest one-year haul in investing history, trumping the nearly $4 billion he made with his “short” bets against subprime mortgages in 2007.

Mr. Paulson’s take, described by investors and people close to investment firm Paulson & Co., shows how profits continue to pile up for elite hedge-fund managers. Appaloosa Management founder David Tepper and Bridgewater Associates chief Ray Dalio each personally made between $2 billion and $3 billion last year, according to investors and people familiar with the situation. James Simons, founder of Renaissance Technologies LLC, also produced profits in that range, say investors in his firm.

By comparison, Goldman Sachs Group Inc., Wall Street’s most profitable investment bank, paid all of its 36,000 employees a total of $8.35 billion last year. James Gorman, chief executive of 76-year-old investment bank Morgan Stanley, is expected to receive compensation of less than $15 million for 2010.

Mr. Paulson and his fellow managers seldom take much of their profits in cash. Some of the profits are so-called paper gains, which reflect the rising value of their firms’ holdings, and could erode if those investments sour. Other gains come from selling investments, and most of those are rolled back into their funds.

Mr. Paulson and the other top managers made winning bets on commodities, emerging-market companies, bank shares and U.S. Treasury bonds, among other investments. These moves, along with profitable picks by other funds, are part of the reason the hedge-fund industry is back on its feet after a rough stretch. Assets managed by hedge funds have grown to a near-record $1.92 trillion, up 20% over the past year. Assets jumped almost $150 billion in the fourth quarter alone, the largest quarterly growth on record, according to Hedge Fund Research, Inc.

Still, the average fund gained just 10.49% last year, according to the research firm. That’s well below the 15% gain of the Standard & Poor’s 500 stock index, including dividends, and the 19% return of the average stock mutual fund, raising questions about whether the industry can profitably invest the influx of new cash.

Indeed, the enormous gains by Mr. Paulson and the other managers resulted from solid, though not spectacular, performance. Their personal gains came in part from the sheer scale of assets under their control. The largest hedge fund in Mr. Paulson’s $36 billion investment portfolio, Advantage Plus, grew 17% last year, while another big one rose 11%, falling below returns for the broader stock market.

Part of Mr. Paulson’s more that $5 billion profit came from his firm’s 20% cut of his funds’ profits, known in the industry as the “performance fee.” Those fees amounted to roughly $1 billion last year, according to a person familiar with the matter. An added plus for Mr. Paulson: A chunk of those profits are treated as long-term capital gains and taxed at a far lower rate than the standard income-tax rate.

More than $4 billion came from gains on Mr. Paulson’s investments in his funds.

Mr. Paulson amped up profits for himself and many of his investors in a novel way. He was worried about long-term weakness of the dollar and other major currencies, so he devised a way to embed a bet on gold into each of his funds—for those investors who opted for that approach. Mr. Paulson has placed the bulk of his own wealth in these gold-denominated funds and a separate gold-focused fund. Because gold rose sharply in value last year, the gold-denominated versions of his funds rose as much as 45%.

The performance last year, nevertheless, paled in comparison to his 2007 returns, when Mr. Paulson made a huge wager against subprime mortgages and his funds scored gains of as much as 590%.

Last year “wasn’t the greatest trade of all time, but to manage more than $30 billion and still have gains topping 30% is very rare in the hedge-fund business,” says Jeffrey Tarrant, who helps run Protégé Partners, a New York firm that invested in Paulson & Co. in the past.

One way to view the size of Mr. Paulson’s $5 billion profit: It is nearly as much as the $6.4 billion that Forbes magazine last year estimated as the total net worth of Steven Cohen, the well-known head of $12 billion hedge-fund firm SAC Capital. (Mr. Cohen likely added about $1 billion in 2010, one investor says, after 16% gains in his flagship fund).

Appaloosa’s chief, Mr. Tepper, who specializes in distressed-debt investing and manages around $16 billion, notched gains of about 30% by turning optimistic about U.S. stocks before many rivals. Mr. Tepper correctly anticipated the Federal Reserve’s recent efforts to boost the economy, steps that have helped the market rally.

Mr. Dalio’s Bridgewater Associates, which manages $86 billion in hedge funds and other vehicles, made an early shift to U.S. Treasurys, commodities and emerging-market currencies. He correctly anticipated that the Fed would flood the financial system with cash to help the economy, something that would boost bond and gold prices. Bridgewater also anticipated growth in China and emerging markets, which it figured would help commodities and currencies of those nations. Its hedge funds gained more than 30% last year.

Mr. Simons no longer runs day-to-day trading at Renaissance Technologies, which manages nearly $16 billion and specializes in lightning-quick computer-based trades, so his pay actually dropped a bit in 2010.

But Mr. Simons still owns the bulk of the firm and invests in its hedge funds. Renaissance’s two funds available to outside investors, Renaissance Institutional Equities and Institutional Futures funds, gained about 18% last year, following a disappointing 2009 when the firm considered closing them to outsiders.

Renaissance’s Medallion fund, which is primarily open to Renaissance employees like Mr. Simons and has long recorded big gains, climbed about 30%, according to people close to the matter.

The hedge-fund business now is so big that some managers are hinting they’ll return money to clients instead of investing it. Handling so much cash can make it hard to generate big gains in some trading strategies.

Mr. Tepper, for example, has told some investors to expect to receive some cash back in 2011. He returned $500 million to investors last year. This year, he may return several billion dollars, according to people close to the matter.

Other firms, such as Paulson & Co., have closed certain funds to new investors, but are actively raising new money for other funds. Mr. Paulson recently hosted a New York City event that featured speeches by former Fed chief Alan Greenspan and several chief executives of gold companies, aimed at boosting interest in his gold-focused fund.

Despite Mr. Paulson’s winning touch in 2010, he may face a challenge. Gold is down more than 6% so far in 2011, meaning he is likely starting out with losses.

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com

A year ago, investors were dealing with heavy losses from the most brutal stock-market selloffs in years. The last thing they expected was a ferocious bull market. And yet, shares soon began to soar — climbing more than 50%.

Last year’s unexpected stock rebound — and the sudden selloff last week — should remind investors to be on the lookout for the next surprise. That’s because big profits come in being early to the next trend, and in preparing for the next downturn.

“If you don’t leave yourself open to surprises, when they occur you probably won’t respond correctly,” says Mike O’Rourke, chief market strategist at institutional trader BTIG LLC.

It’s a simple rule of thumb: Buy before the good news; sell before the bad. The tricky part comes, of course, from guessing where the news might break to begin with.

Here are some places to watch:

Energy Boost: Many analysts expect energy prices to keep climbing, as demand from China pushes oil prices higher.

But Mr. O’Rourke says crude prices could actually drop below $50 a barrel this year, helping to fuel an economic recovery. He argues that as China applies the brakes on its growth, and is no longer focused on filling its strategic petroleum reserve, prices could fall.

“Despite this record Chinese demand in 2009, crude has been unable to sustainably move above the levels achieved in the spring” of 2009, Mr. O’Rourke says. “If this demand wanes, it could have a real problem” for energy prices.

Meanwhile, more energy supply is on the way, which also could pressure prices. There have been major oil discoveries in recent years, including in the Gulf of Mexico and off the coast of Brazil. And the U.S. Geological Service said last month that Venezuela’s Orinoco Belt held far greater oil reserves than had been believed.

Heady Growth: Most economists predict subpar growth in the U.S. and around the globe in 2010. Consumers are dealing with too much debt, help from government spending will peter out, and businesses aren’t spending much.

But if the recovery conforms to historic patterns after major downturns, it could be surprisingly strong.

Some recent data have been encouraging, with manufacturing activity at its highest point since the summer of 2004. An index compiled by the Institute for Supply Management rose to 58.4 in January from less than 55 in December. A reading above 50 indicates expansion. A recent survey showed banks have stopped making it tougher for consumers and businesses to borrow, another hopeful sign.

“The more I look at the data, the more this looks like a typical recovery,” says Norbert J. Ore, chairman of the ISM survey committee.

Robust growth may have to await a rebound in employment. But the improving data are a reminder that the economy just might surprise with its strength.

Japanese Jitters: Investors are concerned about the debt piled up by countries including Spain and Portugal. Some worry that the European Union or others might have to step in to help Greece deal with its debt.

Not as many investors are focused on Japan, though perhaps they should be. Japanese government debt as a percentage of gross domestic product is around 220%, up from 120% in 1998, according to the International Monetary Fund. (In contrast, federal debt is around 85% of the U.S.’s GDP.) Demand has long been strong for Japanese debt, and 10-year bonds yield well below 2%, partly because most of it is held by loyal Japanese citizens. Some observers have been warning about Japan for a decade. The country’s debt markets have been steady, but there are indications that domestic buying is slowing.

Any troubles for that market would be more worrisome than woes in some other countries, given the size of Japan’s bond market — about $7.5 trillion — and the role Japan plays globally.

Another potential worry: the U.K., which has its own debt issues, as well as an economy dominated by the still-troubled financial sector.

Municipal Mess: Municipal bonds have long attracted conservative investors. That might change as the poor health of various states and municipalities comes under scrutiny.

Short-term bonds issued by the state of California yield less than 2%, for example, due to strong demand. But the state is facing a budget deficit of almost $21 billion. As interest expenses rise, they represent a larger chunk of the state’s revenue, a worrisome shift. If investors begin to worry about the health of various municipalities, they could push prices lower for various bonds.

Growing Greenback: There are reasons to expect a dollar rebound. Worries about the debt of European nations took hold last week, pulling down the euro and sending skittish investors back to the U.S. dollar. Gold and commodities fell, too.

If U.S. growth proves stronger than expected, the Federal Reserve could signal an interest-rate increase, which also would help the dollar and weigh on shares of gold miners and other commodity producers.

Health-Care Recovers: Health-care stocks were haunted by the specter of President Obama’s overhaul plans, though the shares have generally held up. In recent days, they’ve been hit by downbeat earnings — such as last week’s quarterly results from Pfizer, which helped send the drug maker’s share price down 5% over two days.

But some of these shares could see healthy gains. Merck, for example, trades at price/earnings multiples that are below the overall market, yet sports a hefty dividend yield of nearly 4%. If the stock market turns rocky (and it certainly did last week), those dividends will look more attractive.

Health-care companies may have an easier time raising prices if the government can’t settle on an overhaul plan, some analysts say.

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com